Cement prices will increase by 12 per cent by the end of next year if the present inflation continues, said CEO and Managing Director Holcim (Lanka) Ltd. Peter Spirig.

He said the staggering inflation in the country is the primary challenge for the construction industry which has been badly affected due to the low purchasing power of consumers.

"The construction sector was growing steadily during the past two years but that trend has changed over the last six months due to the growing inflation", Spirig said.

The prices of construction materials have been growing at a moderate rate and it has been fairly stable in terms of the US dollar over the past few years.

The depreciation of the Sri Lankan rupee has an adverse impact on the prices of construction materials.

The cost of construction materials since 2004-2006 has been growing at an average rate of around 6 percent per annum except for doors and windows which are costly. For a two-storeyed house 17 percent of the cost is for doors and windows, 10 percent for roofing and carpentry while 8 percent is for cement.

Sri Lanka’s domestic cement price development from 1995 has been around US$120/t.

Spirig said infrastructure development is not satisfactory due to inadequate investment. Development of the road network should be given priority.

The shortage of cement in the past few months was due to the price mechanism followed by the government.

The country’s supply sources are not willing to export cement at low prices", he said. The construction boom in India, China and Indonesia and many South East Asian countries was a major reason for the shortage of cement.

The increase in shipping rates, world fuel prices, cost of raw materials such as coal, craft paper and labour were some of the other reasons that affected the price of imported cement.

Secretary General, Chamber of Construction Industry of Sri Lanka, Dakshitha Thalagodapitiya said it is vital that the country increases its production capacity and people should opt for simpler construction designs to reduce costs.

"If the government is to achieve an economic growth rate of 7 percent, investments on infrastructure development projects are vital. With an increase in the budget deficit and a huge defence expenditure there will be a drastic reduction in public investments", he said.